Tesla's Best Week Since 2013 Spurs Bets That Worst Is Over

In Business
2023-01-27 21:09:38Z
By Bloomberg

(Bloomberg) -- Tesla Inc.'s biggest weekly rally since 2013 is offering investors a glimmer of hope that the worst may finally be over for Elon Musk's electric-vehicle maker after a disastrous 2022.

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The stock soared 33% this week, the most since a 41% surge in May 2013. On Friday, the shares closed up 11% at $177.88, the highest since Dec. 9, marking a 65% rise from the Jan. 3 closing low of $108.10.

"Tesla absolutely has seen a bottom - people just thought the stock was overdone," said Catherine Faddis, senior portfolio manager at Fernwood Investment Management. "Now that it has had the bounce, the next move will be more based on fundamentals."

It wasn't easy to get back to here. It took better-than-expected quarterly results, words of assurance from Musk and a $5 billion credit commitment to help shake off last year's gloom.

A big hurdle for the stock will come next week when the Federal Reserve is expected to raise rates and will give a sense of the path forward for future hikes. A hawkish tone could derail Tesla's strong start to the year.

Derivatives traders don't seem concerned. The cost of options protecting against a 10% drop in the shares over the next month relative to bets for gains of the same magnitude is the lowest since August, data compiled by Bloomberg show.

Wednesday's quarterly results and Musk's conference call provided investors much-needed clarity around the company's strategy. Tesla's leader waved off worries about customer appetite for the company's vehicles, saying orders are coming in at almost twice the rate of production since the EV maker slashed prices two weeks ago.

"While we believe this rate of orders may not be sustained in light of the weak macroeconomic environment, it would suggest the company is tracking well to our 1.8 million delivery estimate," Mark Delaney, an analyst at Goldman Sachs Group Inc., wrote in a note Thursday. More crucially, surging orders suggest that any additional discounting this year could be more measured than previously expected, he added.

Still, the coast is far from clear, particularly as the number of rivals keeps growing.

"The EV space had few true competitors until just a few years ago," said Zeno Mercer, research analyst at ROBO Global, whose artificial intelligence ETF (ticker THNQ) holds Tesla. Based on its price-to-earnings ratio, the stock is much more expensive than its peers, so the company "must perform at a higher standard to continue to see share gains," he said.

Though Tesla's valuation multiples are down from past years, they are rising again and are above the average for the tech-heavy Nasdaq 100 Index. The comparison with legacy car companies like General Motors Co. and Ford Motor Co. is even more stark.

And then there's the Musk effect. As the past year has shown, Tesla's mercurial leader can be a boon and a curse for the company. That makes even some long-term bulls wary of calling a bottom.

"With Tesla, there's also the ever-present background risk of 'company specific' idiosyncratic and sentiment-related factors" that can spur volatility, said Morgan Stanley analyst Adam Jonas, who has Tesla as his top US autos pick. "Stability of the share price seems to be the least likely outcome here."

--With assistance from Elena Popina.

(Updates stock move in second paragraph.)